APP hopes to reach debt deal by May
APP hopes to reach debt deal by May
Dow Jones, Jakarta
Asia Pulp & Paper Co. hopes to sign a formal US$6.5 billion debt restructuring plan with creditors of its Indonesian operating units by May 31, later than a previous deadline set for the end of 2002.
The Indonesian Bank Restructuring Agency, or IBRA, which is leading the restructuring, and APP have completed an outline restructuring plan, which the company released in a statement Thursday. The debt plan gives APP's myriad of creditors financial incentives to agree to the restructuring by May. 31.
Resolving the Indonesian company's debt is key to moving forward with restructuring APP's total $13.9 billion borrowings, among the largest in the emerging markets.
The company - which is based in Singapore and has operations in Indonesia and China - called a debt standstill in early 2001 amid falling global paper prices.
Since then APP's creditors - which include hundreds of organizations ranging from individual bondholders to banks and export credit agencies - have been involved in often fractious negotiations among themselves and with the ailing paper company.
Some creditors have tried to recoup their loans through the courts amid allegations APP has continued to spend company money on questionable transactions, but the legal action has made little headway.
Earlier this year, IBRA took control of the restructuring of APP's Indonesian-based companies, PT Indah Kiat Pulp & Paper, PT Pabrik Kertas Tjiwi Kimia, PT Lontar Papyrus and PT Pindo Deli Pulp & Paper.
The government agency is under huge pressure to get back around $1 billion owed by APP to help ease the state's growing budget deficit.
IBRA had earlier set the end of this year as a deadline for all creditors to agree to its outline debt restructuring plan.
But the lengthy legal process involved in drawing up the plan in consultation with hundreds of creditors meant this was impossible, said a person close to the talks.
The plan released by APP Thursday says creditors that sign the deal by end-May will get accrued interest repaid in cash quicker than creditors that miss the signing deadline.
Many of the details in the plan have already been released by APP. The principal and interest for about $1.2 billion of the Indonesian operations' debt will be repaid over 10 years, while for $3 billion of the debt only interest will be paid over 10 years, and that debt will then be refinanced.
A further $2.3 billion of debt will be refinanced with a convertible bond. The plan assumes APP will earn an average of $750 million a year before interest, taxes and depreciation.
But Thursday's release gives more details on how creditors will monitor the company during the restructuring.
APP must make annual payments from cash-flow into an escrow account that will be used to repay interest and principal to creditors.
Between 2003 and 2005, APP must make an annual payment of $360 million, rising to $420 million between 2006-2007, and then $480 million from 2007-2012.
Creditors will be able to call APP into default if the company's payments fall below $250 million for more than one year.
A majority of 75 percent of creditors, including IBRA, must vote for a default for it to become effective. In this case, creditors will have the right to convert their debt into shares of the Indonesian companies.
The plan allows for an international consultancy firm to review APP's management during restructuring. APP's annual capital expenditure is capped at $180 million, after which creditors must give approval.
A panel of experts appointed by the creditors and APP will set the prices that the company should pay for wood supply to keep control of costs. Creditors are concerned over the declining supply of APP's access to legal sources of wood in Indonesia.